Interfuel Substitution in Residential Energy Demand in Korea

Recently, low fertility and aging society has been big issues in Korea. These trends change population structure and affect household energy consumption. In this study, we estimate the effect of demographic factors on interfuel substitution in Korean residential energy demand by the linear logit model of cost shares. We use final energy consumption data in residential sector, real gross national disposable income, demographic factors such as population growth rate, retail prices of energy, single-person household ratio, and senior population ratio from 1987 to 2009. We estimate own and cross price elasticities and project energy cost shares by 2020 with estimated demographic variables and gross national disposable income. The results indicate that demographic factors make demand for energy more inelastic and the increases of the single person household ratio and senior population ratio increase cost shares of gas and electricity. On the other hand, population growth rate decreases comparative demand of electricity but increases gas shares. It seems that there is trade-off relationship between aging society and low fertility in electricity demand and cost shares of gas demand will increase continuously.